Ladies and gentlemen, welcome to Scandic Hotels Group Q3 report 2020. Today, I'm pleased to present Jens Mathiesen, President and CEO. All participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Please note that this call is being recorded. Jens, please begin your meeting.
Thank you very much, Operator, and good morning, everyone, and thank you for joining this presentation of Scandic Hotels' third quarter result. As usual, I'm here in the room together with our CFO, Jan Johansson, and our Head of Investor Relations, Henrik Vikström. If you please start to turn to page two, then I'll start a brief summary of this quarter. Scandic's average occupancy rate was 36% in the third quarter, which is a clear improvement compared to the historically weak second quarter, but it is still less than half of what is normal for a third quarter for us, and also below what is needed for a sustainable profitability. Our adjusted EBITDA improved from a record loss of more than SEK 1 billion in the second quarter to a slight positive result.
Apart from better occupancy compared to the previous quarter, the improvement was explained by both governmental support of around SEK 370 million combined with very low operating costs in general. We are now taking necessary actions to adjust our rent costs. We are intensifying the ongoing negotiations with our landlords, and we have now decided to pay reduced rents until new agreements on reasonable terms have been reached. The reason for this is very obvious. The pandemic will have a long-term impact on the hotel industry, and it will take several years before occupancy returns to the levels we used to see as normal. Our leases must therefore also ensure profitability at lower occupancy levels and provide a reasonable risk sharing during periods of low demand.
Scandic has introduced a number of commercial initiatives in the past few months, and we have strengthened our commercial organization with the appointment of a new Chief Commercial Officer in order to further sharpen our focus and accelerate the pace in this commercial area. In October, our occupancy was 33%, which largely was unchanged compared to September. Please turn to page three for an overview of the market development in the Nordic countries. Occupancy improved from extremely low levels in all Nordic markets during the summer, driven by domestic leisure. In Norway, occupancy actually exceeded 50% in July, and August was slightly weaker than July in all markets as the vacation season ended. In September, occupancy in Sweden was basically flat compared to August, while it came down a bit in the other Nordic countries.
In the beginning of the fall, we began to see some domestic corporate business, mainly at smaller destinations, and we have also seen relatively good activity on weekends from domestic leisure travelers. As a result of changed travel behavior, there has been a shift in occupancy levels between the days of the week, with occupancy now often being highest from Friday to Sunday instead of the normal pattern where it generally was highest between Monday and Wednesday. The market is still significantly affected by reduced international travel, the absence of larger events in the big cities, and travel restrictions among companies and organizations. Due to that, activity levels are on extremely low levels in the big cities. In October, our average occupancy was in line with September, with small improvements in Sweden and Norway, while Finland, Denmark, and Germany all have been negatively impacted by stricter government restrictions.
At present, demand is negatively affected by increased spread of the coronavirus and more restrictions in all our markets, and we are therefore cautious on market development for the coming month. On page four, we show market RevPAR trends. Even though occupancy picked up significantly from the second to the third quarter, RevPAR is, as you can see, less than half of what it was one year ago in all countries, so we are still down at very low levels. Please turn to page five. The average occupancy exceeded 40% in all countries if we exclude the capital cities, but was on average only 27% in the capitals, which is extremely low in a historical perspective, and basically only one-third of what is normal for a third quarter in those capital cities. On page six, we show monthly development in the capital cities during the third quarter.
Stockholm did move in the right direction with a modest gradual improvement in August and September, but there was a sequential decline in Oslo, Helsinki, and Copenhagen as these markets were more affected by government restrictions. Please turn to page seven. When the pandemic hit us, we started immediately by protecting our cash flow through postponements of rent payments, cancellations of dividends, project freeze, and reduced and rescheduled CapEx. We did also act quickly to reduce operating costs, excluding rents, and costs were already in the second quarter down by as much as 60%. We did, during a temporary period, also close more than half of our hotels, and we implemented staff reductions that affected around 80% of our team members, including furlough. Now we are taking necessary actions in order to adjust our rents, which is absolutely necessary for us given the current market environment.
I think it is obvious to everybody that it will take a very long time before we return to normal activity levels, and the market situation is extremely extreme in many destinations at present. In many of our hotels in the big cities, rent costs exceed revenues, which of course is unreasonable. We are now intensifying the negotiations with our landlords, and we have decided that we will pay reduced rents until we agree on reasonable terms. We must have agreements that enable profitability at lower occupancy levels and with reasonable risk sharing in times of low demand. This is crucial if we should continue to develop our business together with our landlords. Jan will soon talk a bit more about the financial implication from this part. Please turn to page eight. We have today announced a takeover of a hotel in Arlandastad, close to Arlanda Airport in Stockholm.
This is a modern hotel with investments limited to branding only. The hotel has been closed for some time as the previous operator went bankrupt, and so this is also important to say it's a contract with a fully revenue-based lease agreement with a very fair risk sharing and a low break-even point for us in Scandic. I believe that we will see more agreements with this kind of a structure in the future. On page nine, you can see our current hotel portfolio. All but 14 of our hotels were opened by the end of the third quarter. 10 of the closed hotels are in Helsinki, and the remaining four are in Norway. We opened one new hotel in Finland in Q3, and there are no planned openings for the remainder of this year.
At the end of the quarter, our pipeline consists of just above 5,000 rooms, which corresponds to 9.6% of the existing portfolio. This excludes the recent signed hotel at Arlandastad. Given the current market situation, especially in the capital cities, we expect to see some postponement in the pipeline for the coming years. Please turn to page 10. We have obviously been very focused on cutting costs and protecting our cash flow, but it is equally important that we make sure that we drive our revenues. In September, we launched a coworking concept, and Scandic does now have the largest network of coworking spaces in the Nordics, and this has been well received by the market.
We have also launched an offering for student housing at selected destinations, and we have also focused a lot on driving leisure business to our hotels during the weekends, as well as securing our corporate agreements ahead of 2021. So we have strengthened our commercial organization also by merging our two commercial units and recruiting Anna Spjuth as new Chief Commercial Officer. Anna joined us a few weeks ago. She has a background at Scandic but has recently worked for one of our main competitors. I see great potential within this commercial area going forward. And with that, I hand it over to Jan, who will take you through the financial part of this presentation. Here you go, Jan.
Yeah, thank you, Jens. We go to page 12, where we have our standard table for the revenues. And you can see here that we are 60% down. Even though Q3 was a sequential improvement over Q2, we are still 60% down compared with last year. This is SEK 3 billion less in sales, SEK 1 billion a month less than last year. Organically, 58% down. Norway is a little bit better on the back of a strong July in Norway. Otherwise, it's quite bleak numbers. Occupancy has been reduced with half compared with last year, and we were, as Jan said, around 45% for the month. Rates are between 10%-50% down. Norway has held up best when it comes to rates. It's, of course, impacted by a mixed effect: less demand in the cities, more demand out in the regional parts of each country, and so on.
And of course, more discounting, especially during the weekends, in order to attract local leisure. If you look into the quarter, sequentially, we started good, as you saw from Jens's presentation, with 42% in occupancy, and gradually that tailed off during the quarter here. October, which we talked a little bit about outside the quarter, obviously, but I guess you are interested anyway, was supported initially by the autumn breaks. While you probably understand that the end of October, when we got more restrictions, has been heavily impacted by those restrictions. Just to mention and repeat again the sources of demand: domestic leisure during July and during the weekends later on during the autumn, project business after summer vacation has been reasonable. So in many parts, especially northern Sweden and so on, the market has been good.
We, of course, lack a lot of corporate business in our hotels, and that is especially hitting them, the big cities, as well as the total absence of international travelers. Next page, page 13, we have some disclosure regarding our segments here. And we posted a positive Adjusted EBITDA, but if we exclude the governmental support, which predominantly came from Q2, the underlying Adjusted EBITDA number was - 281. And there was a sequential deterioration during the quarter. I think you can assume on that level, occupancy level, or minus or on 35% occupancy, we have a traveling speed of - 100 Adjusted EBITDA per month. And I mean, if we compare with last year, it's not a fun comparison to do, but we have to do it anyway.
We exclude governmental support. We have lost over SEK 1 billion in adjusted EBITDA on the deterioration of topping the 3 billion. The positive way to look upon it is that there is a massive cost reduction of close to SEK 2 billion in the quarter. Norway stands out a little bit with an occupancy of 41%, which is best in class during the quarter. We also post excluding governmental support, but including the furlough compensation, which is possible, a positive adjusted EBITDA of SEK 42 million, corresponding to a margin of 6% through an extremely tight cost control, of course, in the Norwegian organization. Looking into Finland, Denmark, and continental Europe, the average occupancy during the quarter was around 30%. Of course, it's impossible to earn any money on that occupancy level and also with that.
So I mean, the total accumulated loss, there was SEK -200 million over the quarter in those countries. You have also seen here that we have posted some SEK 370 million in retroactive governmental support during the third quarter. This is primarily coming from the second quarter. Sweden, SEK 149 million, that corresponds to two months of governmental support in April. We know that there is a continuation of that support program, and hopefully we can get that into the books during Q4. Norway, two months of governmental support, July was too good to be eligible for that. And also there, there has been announced a continuation of governmental support to fixed costs. And Denmark corresponds to approximately three months of governmental support of SEK 156 million. And there is also a framework, as we understand it, for Denmark now being developed.
Of those SEK 370 million, two-thirds approximately has been accounted for as rent reduction as coverage of fixed costs. That amounts to a rent reduction from the government and the taxpayers of SEK 233 million in the quarters. As I said, further support measures are on its way, which we hope to include in the Q4 numbers, and that should obviously then support the results in Q4. If we then go back to cost reduction I mentioned there in absolute terms, and that's page 14, it's about SEK 1.9 billion in cost reductions. To understand that, I think I mean, we have 4,000 less full-time equivalents in the end of September compared with the beginning of the corona crisis. The number will probably be even higher if we made some adjustment for reasonable volumes also during the summer.
In addition to that, we have more than 1,500 full-time equivalents on some kind of furlough, predominantly in Finland and Norway. Together, that means that employee cost is reduced with more than 50% during these very, very special times. In total, our operating cost, excluding rent, is 50% down. We run the operations on a bare minimum, which is, of course, a challenge now to balance against customer service level, which we need to have, and we also need to see to that the hotels we are running now also have a corona-safe environment, as we all understand that we need to have, which means that this is a quite complicated situation at many hotels for us right now. We will, of course, continue to work with cost reductions. However, there are some areas which are more complicated.
We have talked about the rents, but also to mention here, of course, it is more complicated and also property costs, as we need to have some kind of decent heating in our hotels. If we then talk a little bit about rents, and I guess we should talk more about it, is that they are down with 45%, including governmental support of plus SEK 200 million during the quarter, which I mentioned, which is a retroactive effect from the beginning of the year. Excluding governmental support, they are 27% down, and that's predominantly done or the variable part. There are a few million in rebates here from landlords, but that's just a few million included here. And as you probably understand, on these occupancy levels, we are now hitting the guaranteed levels in the contracts which we're having with the landlords.
If we then turn to next page, we express this in % of revenues. And here you can, I think, basically the same pattern, whether you look upon accumulated numbers or Q3 in isolation. But let's take a look on Q3 to the right here. You can see here that last year, and obviously there weren't any governmental support there, it was around 27% in 2019. That corresponds more or less to the number which we arrived on for the full year. This year, we are close to half of revenues, which is accounted for as, which is rent, it's 47%, as you can see here. And this is, of course, unsustainable in this situation. And of course, we need to come down to a number which starts with a two here, as you probably understand. And that would also be, we believe, kind of a reasonable risk sharing here.
And so we need to find terms together with the landlords to keep us floating through this very, very complicated situation. And so that's about that. I think I should finalize my part of the presentation with some words on the cash flow. And that's on next page, page 16. And if we start from the bottom here, you can see that we have SEK 3.2 billion in available credits, which is, of course, good. But we have currently a negative cash flow. You can see here that during Q3, including governmental support, the number is -SEK 293 million. If we do a little bit of calculation and exclude governmental support, we exclude working capital movements and exclude restructuring costs, the underlying cash burn is around -SEK 175 million a month during Q3.
The trend is adverse as we go out from the quarter with worse occupancy than we started the quarter with -SEK 175 million a month during Q3. In the working capital we have right now, we have SEK 500 million of deferred rents, which has not been paid due to agreement which we made when we entered into this pandemic. They are due to be paid in Q1 2021. In addition to that, we have SEK 250 million of deferred VAT and social security charges, which is also due to be paid during Q1 in 2021. Finally, CapEx, which is, of course, one explanation to the cash burn which we are having. We seek to maintain CapEx this year at a number of around SEK 700 million. You have also seen that we have a pipeline to serve for next year.
Obviously, we will seek now to spend less than SEK 700 million despite the demanding pipeline we are having for next year, which will mean that we will obviously engage with our partners in those projects to find solutions for that. And with that, I hand the word back to Jens.
Thank you, Jan. Just a closing remark on the outlook and the last page. As we have now showed, the average occupancy for Scandic was 33% in October, which is in line with September. Demand is currently negative, affected by the increased spread of the coronavirus combined with stricter government restrictions in all our markets. Based on the current booking rate, we expect occupancy in November to be lower than October. We expect to receive continued governmental support during the latter part of this year, which will have a positive effect on results in the fourth quarter.
Finally, the pandemic will have far-reaching consequences for the whole industry, the whole industry. Hence, it will take several years until we reach a normal or what we could call a new normal level. With that, I hand it back to the operator for the Q&As.
Thank you. If you do wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. Our first question comes from the line of Adela Dashian from Handelsbanken. Please go ahead.
Yes, good morning. Thank you so much for taking my questions. First of all, I would like a clarification on your decision to reduce rent payments. Are all of your landlords targets of potential rent negotiations, or is it primarily the ones with which you have fixed lease agreements?
No, it's definitely not all. We have, as you know, quite a broad mix of contracts, and we do have quite a lot of hotels that are not an issue due to the fact that it is turnover-based and even some without any guarantees. Of course, the major problem right now for us is by far the large hotels in the big cities, the capitals, where we have fixed leases or very high guarantee levels that we hit at the current levels, so those are the ones that we especially concentrate on,
and how has the reaction been so far by your landlords?
Of course, it's very different because we have had conversations around this topic for quite a long time. Everybody understands the current circumstances, and everybody understands that the corona will last a bit longer, and with the new restrictions, they also understand that.
Positively said, I think many of the landlords, they have a very long-term view on this and not only just a short-term view. They have very low interest rates right now, so we can actually handle that situation together with them and find solutions to take us through, I would say, especially the coming years with levels that cater for the lower occupancy levels. And then, of course, we are willing to look also how to secure the contracts long-term in that same discussion.
Got it. Thank you. And then I think I'd also ask about occupancy levels. So going forward, how should we think about them? Do seasonal factors such as winter holidays matter, or is it more dependent on the current situation and development such as easing restrictions and eventually the introduction of a vaccine?
Yeah, I think, I mean, it's of course very, very complicated. I think what we have seen is that when you make changes in restrictions, you have an immediate effect. I think in lockdown now a little bit, but I think if you create clear expectations in the society, people, I think, have a possibility to adapt, and that is good. Then you can see some stabilization maybe of demand because people start to adapt. When you have these kind of sharp regulations coming into play, we see immediate effects on occupancy. We see immediate effect of cancellations and so on. I think the segment which has been especially sensitive to this is, of course, meetings because they're also meetings business, not at a normal level, of course. That segment is extremely sensitive to any changes in these things. It's complicated. It's quite low visibility.
There is some stability out in the regional cities and areas and so on in the countries. And as we repeated one more time, the big cities are very, very difficult for the moment.
Have you seen any signs of international business travel coming back?
Well, we saw a bit. We saw a bit, but it's very slow. We don't see a lot of Americans and international business from China yet. And European market is right now extremely hurt. And you can actually, if you look around Europe, the Nordic market is actually much stronger inter-Nordic-wise than the rest of Europe, where we have a total lockdown in Brussels, and we see Paris also with a lot of restrictions closing down at 8 o'clock in the evening, etc. So I think right now the Nordic market is actually a bit better off because of the local way of handling it. But it is with local business more than European or international business. That is very, very limited.
Yeah, we will need to see infection rates stabilizing or coming down before we see any particular movements in the positive direction here. But with the current trend here, we should prepare for a very difficult period.
Okay. Thank you so much. And then good luck with the rest of the year, guys.
Yeah, thank you.
And the next question comes from the line of Jamie Rollo from Morgan Stanley. Please go ahead.
Yeah, thanks. Good morning. Three questions, please. First, a sort of simple one. Could you help us quantify what state aid you expect in the fourth quarter? Maybe just a round number or range would be very helpful. Secondly, just on the landlord discussions, I think you said you've already decided to pay reduced rent.
So could you help us understand what that reduction is? And is that in line with the figure you gave on the call for the rent turnover ratio to be beginning with a two, which I think suggests down by about a third? And then finally, on the break-even occupancy, the target of 40% EBITDA break-even excluding state aid, is that still valid? Because I think your math is saying SEK 100 million negative EBITDA a month at 36% occupancy. So I don't think you'll quite get to break-even at 40%. If you could talk about that. And also, obviously, your room rates are down pretty sharply. So I think your original sensitivity may have been based on last year's room rates. So if you could help us understand how that math may have changed. Thank you.
Yeah, you're exactly right there, Jamie. I mean, there are two things which actually, I mean, the 40% break-even, what's not anything which we have experienced before. So obviously, it was an Excel calculation here, which is now facing reality. And it's so, I mean, the one effect which is not helpful at all is the imbalance in mix here. We see that there is not good, but better occupancy level out in the smaller hotel in the regions, whilst we do have the average occupancy in the big cities in the big hotels are much lower in combination with a high intra-week volatility in occupancy where we have reasonably strong Saturdays and very, very weak midweek days there due to the absence. So you're right in that sense that we are probably north of 40%.
That is especially so, I think, in countries where we are more dependent on capital cities like Copenhagen, for example, like Finland with Helsinki and partly Sweden, and of course, Germany. Norway, there we have a little bit other balance in the hotel network. In general, smaller hotels and also more regional hotels. I think I have good hopes that we can maintain a break-even level below 40% in Norway, but it's probably a little bit higher in the other countries. So that's what we see right now there. And when it comes to governmental support, we have to come back there with an estimate later on here. I think it's not prudent to put out the number now, but I think one guidance there, when thinking about it, I mentioned that Sweden, the support we have got so far is based on two months.
I think what has been prepared now from the Swedish government is three months. I think you can take that number as a guidance. I think Denmark, we have not had full visibility about the rules there, but the old was based upon some three, three and a half months, something like there. It's probably so that it will probably not be a lower number, if I may say so. Norway was based, if I recall right, on two months. They have said that they will reduce the monthly number there, but maybe they will extend it in time on the other hand there. We will need to come back to that, but it will be probably a substantial number. It will be that. That will, of course, be helpful.
And I think coming into the rent discussions and the rent percentage and so on, and of course, when we get this governmental support and so on, of course, that will be part of the equation. So I mean, one way to look at it is that that compensation will be the part which goes through to the rent that will primarily go 100% through the Scandic system and into the pocket of the landlords, hence taking some part of the pain of the discussions between us and the landlords. Yeah, so if you see what did I try to express myself reasonably clear with that? Yeah, no, I get that. The government support on the rent side as well. But if you exclude that, what are the rent reductions you've already made, please?
It's very difficult, Jamie, to put an exact number on that. And you can do your estimates yourself, I think, out of what Jens already said. And it's very important for us to say that we do not have an issue all over, as already mentioned. The biggest problem is, of course, the fixed leases and the high guarantees, especially in the capital cities. And we also have outskirts hotels that are doing quite well, and those we don't want to touch. And so there's an ongoing conversation between us and the landlords. And I think everybody understanding this pandemic is also understanding that we need to find solutions together and that we need to find a solution short-term in order to have a stable long-term relationship. And luckily, everybody is at least understanding that this is a pandemic.
It will eventually end at a certain point. And after that, there will be a life where we want to stand together. Scandic is the largest operator in the Nordics. And if we should not be here to operate these, what would then be the choice to take from them? So I think we are pretty well into that discussion, and we definitely see that they also on the other side understand the situation. Just so I understand fully, so Scandic has already decided to stop some rents before the negotiations are over. Is that right? That's the line the company has taken. It's correct that what we have done, we have actually paid rents up to now, and we have paid even the rents for November. So you can say we have paid normal rents all year through, even though the situation is absolutely not normal.
What we have decided is, of course, now to with these hotels that have very unfair levels of lease levels, where lease levels in some occasions are higher than the turnover, then we have confirmed today that we will pay a part of that turnover in rent. So we do not stop paying, but we will pay a fair rent until we reach the right level of agreement.
And that's from December, is it?
That's from the coming month, yes.
Okay. Thank you very much. Thank you.
And the next question comes from the line of Stefan Andersson from SEB. Please go ahead.
Thank you. Just following up on the topic. So when you say paying a lower level, is that also mean that you will book the lower level in your book? So will you treat it as a debt and just have a cash flowing on the payment?
We intend to actually find the solution together with the landlord. When that is done, we put that actual number into the books. So we have already ongoing discussions, and we want to use the period every second, I think, to find those solutions.
Yeah. Stefan, Jan here. I think, I mean, this is something which we, of course, will engage now in. To be extremely honest, which I'm always this, I say that we will have much more insight around this theme when we close the books for Q4. So I think it will be reasonably easy for us to take a standpoint with regard to how this should be accounted for. But let's keep that question a little bit right now because I think we will need to see where we end here also.
I think the most important thing right now is that we find an agreement which is mutually acceptable for this situation. And we need to focus on that 100%. So I mean, that is our intention here because, I mean, we see these as long-term relations and partnerships.
Another question on the same topic. When reading the text there, I guess you could get the impression that you stop paying for all your landlords. And I fully understand that that's not really the case. So could you maybe help the market by indicating what kind of percentage of your hotels or revenues or whatever that you are actually targeting with this? Just to understand the size of it and scope of it.
Second, connected to that question also, when it comes to Pandox, I know that they have a rather high portion of variable leases. So my question is, is Pandox also included in what you mean with these payments?
I think we won't mention, you can say, individual partners into this, but definitely Pandox is probably the least of our problems in the current situation. As you know, we have a large portion of variable leases with them and even a large portion without guarantees. So Pandox is perhaps one of the least problems we have under the current circumstances. It's also difficult to put a percentage, Stefan, on. I understand your questions, but you need to look at how many hotels do we have in the capital cities.
And especially there, we need to find solutions as long as they are hit more than the rest of the countries. We do have a lot of hotels in the outskirts, but they are also smaller than we actually can run with a small positive EBITDA right now. And of course, those are not an issue. So it's not that we take all of the portfolio. We need to find a solution for those that is not running right now with a sustainable EBITDA and cash flow.
Okay. I'll try again. Is it more than 50% or less than 50% of the hotel?
No, but I think, Stefan, we cannot go into this so much more now because we need to, I think, have these discussions with our landlords. I think it would be wrong for us to be more open here in this forum today because I think we would need to have these individual discussions. And those, of course, will be held behind locked doors, as you probably understand here. So it would be yeah.
Then on your pipeline, you mentioned you don't have any openings for the remainder of this year. You do have a pipeline, which you just said on stream. Is there ways to delay that if necessary, or are you committed? How is the negotiation going or discussions going with the landlord?
It's a very good question, Stefan. And we have ongoing discussions around and dialogue regarding these openings. And of course, we have a mutual interest in opening with the success for both parties. So we are discussing how we can delay some of these openings a bit.
Some will open on time, and some might open some X months later, whether that's three or six. We don't know yet, but we have a positive dialogue also to do that. We know that there will be a time after the COVID, but right now, it doesn't seem that an opening in the coming six months will be a very good timing.
Then finally, do you see any other opportunities like the one in Arlandastad where you can come in at attractive levels and take over hotels?
There will definitely be hotels out there that could be interested both for us and with this model. So absolutely, that might happen in the future that we see more of those. It's also important right now that I think I hope really and honestly that the whole industry is making it through this. We don't need to have a lot of bankruptcies in the industry, especially from the smaller operators. So I think it's important that we find the right balance in this. But definitely, there will be opportunities for us also going forward.
Okay. Thank you.
Thank you.
And the next question comes from the line of André Juillard from Deutsche Bank. Please go ahead.
Morning, gentlemen. Two questions, if I may. The first one is about the type of clientele you have because you were mentioning that you are trying to do some efforts for the leisure clientele to compensate the lack of business clientele. Could you give us some more color about where the clientele is coming from, how it is coming to your hotels, airplanes, car, train, and so on, just to have a better idea of what could go on? Second question is about the cash flow.
Because when I look at your slide showing that the cash burn in Q3 was around SEK 175 million, and your liquidity available is SEK 3.2 billion, but you have deferred rents of SEK 500 million to pay, deferred tax to pay for SEK 240 million. So if my calculation is right, you have more or less one year visibility in terms of liquidity, which is not that big, and there are big question marks about the negotiation you can have with landlords. So in reality, what is your view on your cash situation? And do you think that there is a clear risk of additional rights issue to do to get some more liquidity, or do you think that the government help will allow you to go through the rest of the crisis? Thanks.
Well, I'll let Jan in a while answer, especially the last part of it.
But first of all, I want to make it clear rights issue is not a topic for us right now. That's why we want to handle this in a good way in good time. And of course, we expect to get continued governmental support as long as we see these clear restrictions on the industry. If I take the first one, and then Jana can add to the second one about the traveling. We have seen actually that especially like Jana was mentioning, that the leisure traveling, especially during the weekends and the holiday periods and just this autumn period of holidays, we have just seen that has been quite okay. So people with families actually traveling around intra-country. So it's a lot of Swedish people in Sweden, a lot of Danish people in Denmark, etc. Of course, some are even traveling between the Nordic markets.
There are a few European travelers as well, even though that's very, very low. It is a lot of Swedish families that actually want to do something. They cannot travel to their normal south part of Europe or wherever they want to go normally. Everything is closed, and they need to do something with their families. They feel quite safe at staying at our hotels. We do all the necessary stuff to handle the safety and keep distance and etc. That has been quite good. The weekends have been stronger than the midweek days. Very local business to your question. Jan, I don't know if you want to add to the.
I mean, the kind of business we are having right now, we are not really dependent on a lot of air traveling and so on because people commute with trains and cars and things like that. I think it's what we call, I don't know whether it's an international expression, but this staycation is reasonably popular for the moment, I think, here around in the Nordics. So I mean, you know very few people who love to stay 365 days at your home. I mean, people need to see something more than that. So I think staycation has been a phenomenon which we see a little bit. But obviously, it only helps Fridays and Saturdays. I can tell you it's a fierce competition for those customers also here. So it's quite discounted.
Finally, then, on this cash burn theme, deliberately we talked about Q3 because, of course, you want us to make an estimate, but I think we cannot do that because I think it's so many variables here with governmental support and occupancy and things like that. So you come very easily into a theoretical discussion, which, of course, we also should have. But I think with this cash burn number, the 175, I think you can make your own sensitivities on this. But I think what we need to do, we need to have a solution with a landlord. And I think that that's the only direction we can go in right now because we cannot make ourselves dependent on this fast recovery in the market.
I think we had some expectations during the summer, but that has not been. I mean, of course, we need to realize that this pandemic will last. We will not have a vaccine coming into effect short term. We need to prepare ourselves for a tough winter, a tough spring, and a tough 2021. Hence, we need to make a reasonable agreement with the landlords, and we cannot count on that governments will support us for a way through. We cannot do that. Of course, if there are support, we will appreciate that. That will enable a more easy solution with the landlords, but we cannot trust that to help the situation to 100%, so we need to find a sustainable solution with the landlords. We cannot plan for. We need to plan for that.
Just to be clear, the SEK 175 million cash burn does include normal level of rents or already renegotiated ones?
The normal level of rents.
Okay. So if you are able to reduce by 30% or even 50% the rents, could you give us a rough idea of this monthly cash burn?
No. I think you can make your own. I think you can calculate that by yourself. You have the parameters now.
We need, I think, to ramp up the last questions, if any. Time is running up. I don't know if we have more questions coming in.
We have one more question from the line of Karl- Johan Bonnevier from DNB Markets. Please go ahead.
Yes. Good morning, Jens. I'll be quick to keep you too long. Just coming back to that 175, you earlier talked about an occupancy level of 50% to get back to free cash generation. I guess that number will now be lower than 50% if you're looking at it, or how should we see that?
Yeah. But I think keep it as a reasonable approximation because we don't have. I mean, it's still so that the pipeline is rather demanding here. And of course, we have the CapEx commitments there. So I think you should keep that as a reasonable benchmark. I can assure you that we do our utmost here in order to put that threshold lower. But I think it's prudent during the normal circumstances, current circumstances, and with the current rent agreements to keep that kind of threshold. But of course, we are working to the full to get it down. And that's also why we now also mention these conversations with the landlords.
Exactly. And I must take another stab on Stefan's line of questioning as well. Looking at the Q3 statement, obviously, the biggest challenge seems to be in Copenhagen and Helsinki. Is there also and I understand that a lot of the fixed rental contracts are really in the Finnish operation.
Is that where we should see you becoming, say, most aggressive in this kind of process, rediscussing things with landlords?
It's not only in those two cities. It's actually the capitals in general also. We even have some of these in central Stockholm. So it is more like an issue we have in the capital regions right now, I would say all over, which is, of course, what we mainly focus on handling. And I guess also on the line of Stefan's asking there, obviously, quite a few of these property owners might be in their own financial constraints for the month.
Not all of them are obviously as well structured as Pandox in that respect.
Do you see a risk that a lot of these situations that you're now ending up in discussions with on this level also will mean that you might lose the contract or are willing to walk away from it even maybe?
So we definitely are even willing to walk away from a hotel if we don't get long-term solutions that are sustainable. That's with no doubt. But I think it's very important to say that we, of course, have initiated these conversations already with several.
Everybody understands with the very, very low interest rates right now that we might put some of these loans on hold, which they also have in a period of time, and then add to the period of the contract in the other end or something like that in order to handle the banks behind it. Everybody understands, even the landlords, that this is a pandemic which everybody needs to be part of handling. You cannot expect to sit and get lease levels that were on the level of 2019 if turnover is down by some 50%-60%. That is not reasonable. I think I'm pretty sure that maybe not all, but a lot of these partners will support in finding the solutions. It sounds lovely.
I guess there is nobody else out there that can offer more competitive kind of terms than you can for the most part. I guess you're entering this from a relative point of strength, even though, and just one final question on the pipeline for 2021, the potential new openings that you indicated earlier to be about 2,400 rooms, I think, or something like that. If you look at that for practical reasons, are there any of those that come in with these kinds of fixed contracts that might have looked attractive at the time when they signed them, but now really need some sort of renegotiation for even to become open?
Most contracts we actually open in Scandic, first of all, it is mostly turnover-based leases with guarantees. That has been what has been signed the last years and the most normal practice and also for these.
And I would say all new openings, we even have a ramp-up period where you can see the levels are lower in the beginning, and then we have a ramp-up period, most often also in a period of time for, let's say, three to four years of ramp-up. So it is at lower levels they start. But even at that, you can say it is not good for either us or the owner to open in a very locked-down market and add more rooms if we can wait some three to six months and do it with a bit stronger opening. So you have seen delays in the market already. You have seen competitors that have delayed a lot of projects. And we are trying to find solutions to do so as well.
And one final, just looking at the coworking and student opportunities, do you see that this can become a meaningful revenue source? Or is it something good to contribute short term rather than something you really see can become something, say, balancing in the whole? Which one did you say? The Coworking. And if you're looking at Coworking and then student accommodation and these kinds of things.
Yeah. But I think Coworking has absolutely been a good start. And we have had a very good start. And we also see that we have a lot of companies asking into whether they can put some people on not only a, let's say, day-to-day basis, but for some months in a period of time where they don't want to travel too much into offices, etc. So it is kind of developing day by day.
It's also, of course, when you have people sitting working there, it also gives us other kinds of turnover. They do rent some meeting facilities and meeting rooms. Some of them even need a room to stay on for a few days or nights. And so it is bringing new business to the hotels. And we think coworking is something that will be here also after the COVID. We think this is a modern way of working. So yeah, I think we need to wrap it up. I think we actually have an interview as well. So I don't know if we.
Thank you very much and stay well.
Yeah. And you too. Thank you very much. Thank you. Then I'll be right back.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.